State Regulators to Develop a Nationwide Database for Mortgage Professionals

Washington, D.C.—The Conference of State Bank Supervisors (CSBS) announced today that the organization has entered into an agreement with the National Association of Securities Dealers, Inc. (NASD) to develop a nationwide licensing system for state residential mortgage regulators.

The announcement culminates an 18-month effort involving CSBS, the American Association of Residential Mortgage Regulators (AARMR) and the industry to develop the uniform mortgage license applications to be used by each state mortgage regulator. These forms are currently being tested by several states for new license applications. In addition, the system will have a central repository of licensing and publicly adjudicated enforcement actions.

“The national licensing system and repository will enhance the state regulator’s ability to protect consumers,” said CSBS President and CEO Neil Milner, “through an increased ability to hold industry professionals accountable for their actions.” “Fraud and other illegal or unethical behavior, such as predatory lending, should decline as states participate in the system, he added.

“The system will also streamline the licensing process for state agencies and the industry through the use of modern technology and centralizing redundant state agency operations,” said Bill Matthews, CSBS Senior Vice President.

"Companies and professionals will only have to complete one online application when applying for licenses in one or more jurisdictions" said AARMR Vice President and Taskforce Co-Chairman Chuck Cross. "Both groups will benefit from access to a national licensing and enforcement repository and more homogeneous state regulations that will likely result from the uniform application," he added

This system will be available over the Internet through a secure web site in January 2008. A total of 30 state agencies have indicated that they will participate in the system. Currently 48 states license or register mortgage lenders or brokers. Some states have multiple agencies that regulate the industry.

Based on a CSBS/AARMR survey of 50 state mortgage regulators conducted earlier this year, state licenses are held by approximately 90,000 companies, with 63,000 branches and 280,000 loan officers and other professionals.

Milner said that “NASD was selected to develop and operate the system based on its successful track record in developing and operating national licensing systems for states in the securities and investment advisor industries.”

The NASD developed and now operates the Central Registration Depository (CRD®) and the Investment Adviser Registration Depository (IARD®) system. The CRD and IARD systems were developed in 1981 and 2001, respectively.

Frequently Asked Questions

What does the project entail?

The Conference of State Bank Supervisors (CSBS) and American Association of Residential Mortgage Regulators (AARMR) have committed to develop a national licensing system and database that will provide uniform applications for residential mortgage lenders and loan brokers, as well as a central repository of information about licensing and publicly adjudicated enforcement actions. The National Association of Securities Dealers (NASD) has been selected to design and implement the system, which will be available over the Internet.

What was the impetus behind this project?

Two years ago, the Conference of State Bank Supervisors recognized a need for more consistent regulation and supervision of the mortgage lending industry. CSBS also discovered that no government or self-regulatory organization now exists to provide state regulatory agencies, consumers, businesses and law enforcement organizations with comprehensive information on a regional or national basis about mortgage lenders, brokers and loan officers. Initially, the project envisioned the development of a uniform mortgage application for every state. A joint task force consisting of more than 20 agencies representing state regulators began meeting two years ago and developed a set of uniform mortgage applications for companies, branches and individuals. A taskforce is now in the process of developing a uniform renewal form and report that can also be used by each state agency. As the idea evolved, participants seemed interested in taking it further, to enable applications to be processed online through a single portal, along with the development of a comprehensive licensing and supervisory repository.

What are the objectives of the project?

The primary objectives of the system are to streamline the licensing process for regulators and industry, reduce regulatory burden, provide accountability to industry professionals, and reduce fraud. Specifically, the system is designed to centralize redundant state agency operations; streamline the licensing process; reduce regulatory burdens; increase consumer protection through enhanced financial safety and soundness, industry accountability, fraud reduction, and easy access to license and enforcement actions

Why are CSBS and AARMR taking the lead?

Essentially, it’s because most mortgage lending is licensed and regulated at the state level. Individual states license, regulate and supervise mortgage lenders and brokers under their own systems, which vary according to each state’s needs. State regulation has increased significantly with 48 states now regulating mortgage lenders, brokers and/or loan officers. Surveys conducted by CSBS and AARMR earlier this year showed that 44 state agencies use paper applications for prospective licensees while only six collect new applications electronically. Thirty state agencies indicated they will mandate the use of the system. Seven agencies will make the system available on a voluntary basis, and five agencies indicated that they will not participate in the system at this time.

What is the timeline for implementation?

CSBS expects to begin developing the system this summer and to deploy the system on January 1, 2008. Approximately 10-12 states will participate in the first year, and more than 30 states are expected to join in 2009 and 2010.

Why was NASD chosen?

CSBS solicited and reviewed proposals from a number of companies to develop the system. Of these firms, CSBS selected NASD to develop and operate the system. NASD, a self-regulatory organization for the U.S. securities industry, operates two national licensing systems for state regulators in the securities and investment advisory industries: the Central Registration Depository (CRD) used to register broker-dealer firms and the securities professionals who work for them; and the Investment Adviser Registration Depository (IARD) system to provide a secure, web-based, electronic filing, registration, and regulation system for investment adviser firms and registered advisers. It also provides regulatory examiners and investigators with compliance and enforcement tools.

How will the system work?

The system’s basic features will be a secure web-based central licensing system and repository containing licensing information, enforcement actions and background data for every participating state-licensed mortgage broker, loan originator and lender. The system will be accessible over the Internet, allowing prospective and current licensees to apply for or renew licenses for one or more jurisdictions over the Internet through a secure website. The system will also collect licensing fees at the time of application or renewal and disburse these to the respective state agencies. The system will only process license applications or renewals. Each state agency will retain its regulatory authority to approve, deny, suspend or revoke a license.

What information will be in the database?

The database will contain licensing information, enforcement actions and background data for every state-licensed mortgage broker, loan originator, and lender. Mortgage lenders, brokers and loan originators operating in states without licensing requirements will have the opportunity to submit information voluntarily.

Who will be able to access the database?

Three general groups will have access to the system: state regulators, licensees and consumers.

Regulators will have access to licensing, enforcement, criminal, other background information and annual report data as part of the licensing approval and ongoing regulation process. Licensed lenders and brokers will have access to their license data. Consumers will have access to public licensing and enforcement actions related to licensed mortgage lenders, brokers and loan officers. Both regulators and licensees will be able to generate standard reports from the central licensing repository. Access will vary by group, with regulators having the broadest system-access entitlements.

What will it cost?

The national licensing system will be developed in multiple phases. Phase one includes development of the core system that will accommodate new licensing applications, annual renewals and annual reports, and central collection of state licensing fees. The estimated cost to develop phase one is $4.3 million. Annual operating costs are projected to be between $6.5 to $7.5 million over the next five years. Development costs for subsequent phases are included in the annual operating expenses.

Who is paying for the development of the system?

CSBS has committed to the mortgage industry that the $4.3 million in development costs will be born by the states, and operating costs will be paid for by the industry in the form of set-up and processing fees.

CSBS is currently soliciting funds from state mortgage regulators to fund the system. Funds received from the Ameriquest settlement will only be used for system development costs.

How will the system benefit state regulators, consumers, industry participants and the economy?

State regulators will benefit from the system by capitalizing on current technology, centralizing duplicative functions, providing a central point of contact for submitting license applications and assisting the industry in policing itself.

Consumers benefit by having convenient access to critical information about the providers of the most important financial transaction of their lives, and reduced potential for mortgage fraud through increased industry accountability.

Industry participants will benefit from a more streamlined mortgage-licensing and fee-collection process. Eventually, the system will be expanded to offer a call center, a national repository of public enforcement actions, document collection (financial statements, SOS, etc.), fingerprinting and criminal checks, background checks, and surety bond and continuing education reporting

The economy benefits by reallocating resources that are made available from a more efficient system, making it easier for regulators, law-enforcement agencies and industry participants to identify and punish fraudulent and incompetent behavior by companies and industry professionals

The uniform applications and the use of current technology will make the state licensing process more efficient for state mortgage regulatory agencies as well as licensed companies and individuals. Companies and professionals will only have to complete one online application when applying for licenses in one or more jurisdictions. Both groups will benefit from access to a national licensing and enforcement repository and more homogeneous state regulations that will likely result from the uniform applications.

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The Conference of State Bank Supervisors is the nationwide organization for state banking, representing the bank regulators of the 50 states, the District of Columbia, Guam, Puerto Rico and the Virgin Islands, and approximately 6,200 state-chartered financial institutions. The Conference is responsible for defending state authority to determine banking structure and the products and services state-chartered institutions can offer and for improving the quality of state bank supervision by providing department performance evaluation and accreditation programs and supervisory education/training programs for state banking department personnel.

AARMR is the national organization representing state residential mortgage regulators. AARMR's mission is to promote the exchange of information between and among the executives and employees of the various states who are charged with the responsibility for the administration and regulation of residential mortgage lending, servicing and brokering.